Friday, March 30, 2007

The Ethanol Scam


Of all issues related to global warming and improving the environment, perhaps none is more farcical than ethanol. Jerry Taylor and Peter Van Doren, both affiliated with the Cato Institute, discuss the distortions surrounding ethanol with a new publication entitled "The Ethanol Boondoggle" (pdf) through the Milken Institute. The authors discuss a number of justifications given for government support of ethanol production and use, none of which justify the incredible amounts of cash flowing into the ethanol industry. This cash comes either through direct subsidies or indirectly through tax breaks, consumption mandates, and the like.

It's especially interesting on global warming. Here's just a few teaser facts from the piece:

  • Federal and state subsidies for ethanol in 2006 were somewhere between $5.1 billion and $6.8 billion. That will soon increase to as much as $8.7 billion annually.This does not include indirect subsidies from consumption mandates, loan guarantees, etc. This compares to federal subsidies for oil, which amounts to well less than $1 billion. (Yes, this doesn't include military spending in the Middle East, but oil prices aren't artificially high because of this spending. This is because the price of oil isn't determined by how friendly a country is, but whether it sells oil on a world market--which every country that has oil does.)
  • The production costs for a gallon of good ol' USA corn ethanol are on average of $2.53 per gallon. No one would buy ethanol but for the tremendous subsidies.
  • Achieving "energy independence" through ethanol is a fantasy. Say the authors "If all the corn produced in America in 2005 were dedicated to ethanol production (only 14 percent of it is so dedicated today), it would have reduced U.S. demand for gasoline by, at most, 12 percent." In order to use ethanol 100% of the time we would have had to appropriate all U.S. crop land to corn production and then find 20% more land on top of that.
  • Even if we were to use pure ethanol in most automobiles, such as is done in Brazil, greenhouse gas emissions would only drop by an uncertain figure of approximately 12 percent. (Remember, it's still burning a carbon-based compound.) The number is uncertain because the production of ethanol (tractors to harvest corn, fertilizer made through the use of hydrocarbons, etc.) adds to greenhouse gas emissions.
One issue the authors do not raise is that the recent love of ethanol has diverted corn from its traditional use--food--and subsequently raised the cost of things like tortillas and animal feed. (Corn farmers might be happy, but ranchers not so much.) The Washington Post has reported that the love of ethanol has tripled or quadrupled tortilla prices in some parts Mexico since only last summer. Tortillas aren't exactly a luxury for most consumers. Ethanol, however, is, at least for our glorious farmers of corn.

As Glenn would say, read the whole thing.

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